Monday, September 28, 2015

The majority of people who consider filing for bankruptcy
protection immediately start thinking about their assets and the possibility of
losing them. The desire to protect your assets from creditors is a natural one
and is usually the primary reason someone considers filing bankruptcy.Often times, this desire to protect assets
leads people to transfer or sell an asset before filing their bankruptcy
case.But potential debtors should know
that certain asset transfers are outright illegal
under the Bankruptcy Code.The Trustee can void (i.e. undo) these
types of asset transfers and take back the transferred property for the benefit
of the unsecured creditors.In plain
terms, this means that the Trustee will file a lawsuit against whoever received
the payment or purchased the asset to recover the property or the cash value of
the property.This right to “clawback”
property of the estate often puts debtors in very awkward situations,
especially when they transferred the asset to a family member or friend who is
now being sued by a United States Trustee.The two types of illegal asset transfers are “Preferential Transfers”
and “Fraudulent Transfers”.Let’s take a
look at the elements of both.

Preferential
Transfers are governed by 11 U.S.C. §
547 and there are two basic types.The
first type of preferential transfer can be referred to as 90 day
transfers.These asset transfers include
any payments or transfers of property to a creditor that: (1) occurred within
90 days of filing the bankruptcy case, (2) involved money or property worth
more than $600 in aggregate to any one creditor, and (3) were made while the
debtor was insolvent (i.e. at a time when the amount of the debts is greater
than the value of all the assets).It is
important to note that the Trustee usually does not have to prove the debtor’s
insolvency with these types of transfers because bankruptcy law automatically
presumes that a debtor is insolvent during the 90 days prior to the filing of
their case.

The second
type of preferential transfer can be referred to as Insider Transfers.Insider transfers include any payments or
transfers of assets to people such as family members, friends, or business
partners that involved money or property worth more than $600 in aggregate to
any one creditor and occurred while the debtor was insolvent.However, instead of only looking back 90 days
from the filing date, the Trustee can undo these types of transfers if they
were made anytime within 1 year of filing the bankruptcy case.

Fraudulent
Transfers are governed by 11 U.S.C. §
548 and include any transfer made within
2 years of the filing date if the Debtor: (1) made the transfer with the actual
intent to hinder, delay, or defraud the creditors or (2) received less than the
fair market value of the property and was insolvent at the time of the
transfer.

Any
potential debtor should be aware of these types of illegal transfers and
consult a bankruptcy attorney about the potential impacts on their case.Debtors who have made a transfer that might
be considered preferential or fraudulent may be able to avoid a clawback
situation by simply delaying the filing of their bankruptcy case.However, all debtors should know that hiding
assets or intentionally committing bankruptcy fraud can result in dire
consequences such as loss of property, inability to receive a discharge, and even
criminal prosecution.The bottom line is
that if you want to transfer or sell an asset before filing bankruptcy you
should talk to your bankruptcy attorney to determine if you can do so without
negative consequences.

Wednesday, September 16, 2015

It is no secret that creditors and debt collectors will go
to great lengths in an attempt to collect a debt they are owed. From numerous
phone calls a day, to leaving messages threatening criminal prosecution, it
seems debt collectors will stop at nothing for what is often a meager pay out
in the end. Recognizing this epidemic, Congress adopted the Fair Debt
Collection and Practices Act (FDCPA) in an attempt to stop this predatory
collecting. It is the purpose of this act "to eliminate abusive debt
collection practices by debt collectors, to insure that those debt collectors
who refrain from using abusive debt collection practices are not competitively
disadvantaged, and to promote consistent State action to protect consumers
against debt collection abuses." 15 U.S.C. §1692.

While the FDCP prohibits many specific actions in order to
protect the consumer, There are three general categories of actions that are
prohibited: 1) A debt collector cannot engage in conduct that is likely to
"harass, oppress, or abuse a person in connection with the collection of
the debt," 15 U.S.C. §1692(d); 2) a debt collector cannot use any
"false, deceptive, or misleading representations or means in connection
with the collection of any debt," 15 U.S.C § 1692(e); and 3) a debt
collector cannot use "any unfair or unconscionable means to collect or
attempt to collect any debt." 15 U.S.C. §1692(f). So what do all these
prohibitions actually mean when it comes down to it? Luckily, the 11th circuit
has provided us some guidance.

Harass, Oppress, or
Abuse

The FDCPA cites specific behavior, although not exclusive,
as examples of behavior that would be considered harassing, oppressive, or
abusive:

1) The
use of threat of use of violence or other criminal means to harm the physical
person, reputation or property of any person;

2) The
use of obscene or profane language or language the natural consequence of which
is to abuse the hearer or reader;

3) The
publication of a list of consumers who allegedly refuse to pay debts, except to
a consumer reporting agency or to persons
meeting the requirements of section 1681a(f) or 1681b(3) of this title;

4) The
advertisement for sale of any debt to coerce payment of the debt;

5)
Causing a telephone to ring or engaging any person in telephone conversation
repeatedly or continuously
with intent to annoy, abuse, or harass any person at the called number;

6) Except as provided in
section 1692b of this title, the placement of telephone calls without meaningful disclosure of the caller's
identity. 15 U.S.C. §1692(d).

The 11th circuit in Jeter v. Credit Bureau, Inc. found that the above list was not
exhaustive, but rather indicative of the kind of behavior that would be found
to be harassing, oppressive, or abusive. 760 F.2d 1168 (11th Cir. 1985). The
Court further found that each case and set of circumstances is different, but
behaviors like those listed above should be considered a violation of the
FDCPA. Additionally, the Court pointed out that what might harass or oppress
one person may not cause the same feelings in another. The issue with the
factors above is that they are subject to each individual's interpretation of
the behavior. To assist, the Court held that the allegedly offending behaviors
regarding 1692(d) should be judged from the perspective of "a consumer
whose circumstances makes him relatively more susceptible to harassment,
oppression, or abuse." Id. at
1179. This standard, along with the facts of each case, would ordinarily be up
to a jury to decide.

False, Deceptive, or
Misleading Representations

The FDCPA provides several restrictions to behaviors
Congress considered to be false, deceptive or misleading. One specific behavior
that has continuously made an appearance in the 11th circuit is that found in
15 U.S.C. §1692(e)(5):

...

(5) The
threat to take any action that cannot legally be taken or that is not intended
to be taken.

For this subsection, the 11th circuit has adopted the
"least-sophisticated consumer" standard used when evaluating
violations under the Federal Trade Commission Act. The idea is that both acts
were intended to protect all consumers, "the gullible as well as the
shrewd." LeBlanc v. Unifund CCR
Partners, 601 F.3d 1185, 1194 (11th Cir. 2010). The idea here is that if
the most basic and uneducated consumer could perceive the communication from a
debt collector as a threat to take legal action, it is likely a violation of
FDCPA. Id. This standard also
protects debt collectors from "liability for bizarre or idiosyncratic
interpretations of collection notices by preserving a quotient of
reasonableness." Id at 1195. The
jury would review the facts of each case, including the interpretation of the
debtor, and make the ultimate determination as to whether there was a
violation, so individuals who are hyper-sensitive or suspecting of
misrepresentations would not be able to hold a debt collector liable for simply
doing his job.

Unfair or
Unconscionable Means

As far as debt collection, the
FDCPA does not defined what "unfair or unconscionable means" include,
so the 11th circuit turns to the plain meaning. Unfair is defined as
"marked by injustice, partiality, or deception;" while unconscionable
has been defined as "having no consequence, unscrupulous, showing no
regard for conscience, affronting the sense of justice, decency or
reasonableness." Crawford v. LVNV
Funding, LLC, 758 F.3d 1254, 1258 (11th Cir. 2014) quoting LeBlanc, 601 F. 3d at 1200. The Court has also determined,
however, that this phrase in the FDCPA is "as vague as they come,"
and therefore applies the "least sophisticated consumer" standard to
determine the behavior here as well, leaving the decision to a jury to make. Id.

The lesson to be taken away here,
is that the FDCPA, with all its restrictions on debt collectors, and
ambiguities in language, was set up this way on purpose. It is intended to
protect all consumers, no matter their level of understanding or education.
When there is a perceived violation, the 11th circuit courts look to how it was
perceived by the consumer, and leave it to a jury to decide. While there is a
slight level of protection for debt collectors, it still heavily relies on how
a reasonable person, no matter the level of intelligence, would perceive the
action of the creditor.

Friday, August 7, 2015

One of the most common issues a bankruptcy debtor must
decide early on in their case is whether or not to try and keep a piece of
property or to surrender that property back to the creditor in satisfaction of
the debt.There can be a myriad of
reasons why a debtor chooses to surrender a piece of property in their
bankruptcy case but a recent opinion by Judge Williamson in the Middle District
of Florida makes the surrender decision even more important.That is because in In re Metzler Judge Williamson held that when a debtor surrenders a
piece of property during bankruptcy they are barred from taking any actions to
defend or stop the foreclosure proceeding in the state court. In re Metzler, 530 B.R. 894, 900 (Bankr.
M.D. Fla. 2015).

This is a
very important development in the Middle District of Florida.Now, when a debtor is considering the
surrender of real property they must be committed to their ultimate decision
because there is no going back.Under Metzler, debtors in the Middle District
of Florida cannot take any “overt actions”, i.e. defending a foreclosure case,
that would prevent the secured creditor from foreclosing on the property and
transferring title.

The Metzler
opinion actually involved two bankruptcy cases, one a Chapter 7 and the other a
Chapter 13.A Chapter 7 debtor has three
options regarding their secured property: redeem the property, reaffirm the
debt the property secures, or surrender the property.Under Bankruptcy Code § 521 all Chapter 7 debtors are required to file a
statement of intent within 30 days of filing the case which tells the court
which option the debtor has chosen.Chapter 13 debtors are not required to file a statement of intent but
instead are required to file a plan of reorganization which indicates how the
debtor proposes to treat the secured property.Bankruptcy Code §
1325 gives the Chapter 13 debtors three options for treating the secured debt:
gain the secured creditor’s consent to the plan, cram down the plan treatment
over the secured creditor’s objection, or surrender the property.

Both
debtors in Metzler took explicit acts
to prevent the respective secured creditors from foreclosing their mortgages by
actively defending the foreclosure cases after stating their intent to
surrender the properties during bankruptcy.Metzler argued that surrender in bankruptcy actually just dissolved the
automatic stay but did not have any effect on her state law rights.But the court held differently when it stated
that “Surrender means something.In the
context of Bankruptcy Code §§
521 and 1325, the Court concludes the term means that a bankruptcy debtor must
relinquish secured property and make it available to the secured creditor by
refraining from taking any overt act that impedes a secured creditor’s ability
to foreclose its interest in the secured property.” In re Metzler, 530 B.R. 894, 900 (Bankr. M.D. Fla. 2015).In light of this decision, all potential
Chapter 7 and Chapter 13 debtors need to be 100% positive regarding their
decision to surrender a piece of property before informing the court of their
intent.All prospective debtors should create
a plan of intent for each secured debt and corresponding asset with their
bankruptcy counsel before filing their case.

Monday, August 3, 2015

The goal of any Chapter 11 bankruptcy case, whether
individual or business is simple: get the plan confirmed. The process of
negotiating with creditors, making personal budgets, and filling out those
pesky monthly operating reports all have the end goal of making a Plan of
Reorganization that is fair, reasonable, and most importantly, feasible for the
client to complete. But what effect does the confirmation order actually have
on the case? What does this mystical magical confirmation order allow to happen
if the Debtor defaults? These answers sometimes, are not so clear, even to
attorneys.

The confirmation order is the crucial point in the
bankruptcy case when plan payments begin, and all the agreements between the
debtor and creditors start over. The Chapter 11 Plan creates a new contractual
relationship between the debtor and creditor, and the treatment that is
provided for in the plan are the new terms. In
re Winn-Dixie Stores, Inc. 414 B.R. 764 (M.D. Fla. 2009). The agreement the
creditor and debtor had before the confirmation is erased, and the new
agreement is controls.

With this in mind, there are really three ways that a debtor
default can be dealt with: 1) the case can be re-opened and dismissed; 2) the
case can be converted to a Chapter 7 liquidation case; or 3) the contract can
be litigated in state court. Generally, courts are reluctant to re-open cases.
Good cause must be shown, and usually pretty compelling circumstances have to
exist for a court to allow a case to be re-opened. There are two ways cases can
be converted, voluntarily or involuntarily. The bankruptcy code, under 11
U.S.C. §1112(b) allows creditors to request that the case be converted if
certain circumstances exist, some of which include material default with
respect to a confirmed plan, inability to effectuate a plan of reorganization,
failure to file tax returns or pay post petition taxes, among several others. It
is important to note that with both conversion and dismissal, the court looks
at the best interest of the creditors, not the debtors, and creditors are not
afraid to pursue these avenues when a debtor has not made plan payments.

The third option relies on the fact that a new contract is
created between the creditor and debtor. Because the Chapter 11 plan and
subsequent confirmation create a brand new contract, creditors can absolutely
pursue action in state court. This means that foreclosure actions can commence,
default judgments can be entered, and the creditor can pursue all legal
remedies they were prevented from pursuing while the debtor was protected by
the bankruptcy.

Bankruptcy is a long and often difficult process, and is not
entered into lightly. A lot of debtors come to us and choose chapter 11 to
protect themselves from foreclosures, or liquidating. While the primary goal of
any chapter 11 is to get the case confirmed, there is no point to confirmation
if the debtor defaults. The moral of the story is to make sure the plan
proposed is feasible for the debtor, and that the debtor makes plan payments so
that the event of a default is not even a concern.

By: Samantha Marriott, Attorney at The Law Offices of Jason A. Burgess, LLC

If you have questions about this or anything else please give us a call at 904-354-5065 or email us at jason@jasonAburgess.com